Sunday, April 27, 2008

Accounting Fraud

Accounting fraud habits seem to be popping up everywhere these days. Many small business owners feel that their companies are immune to accounting fraud for two basic reasons: they don't have many employees, and the ones who deal with money are usually close to the owners. But regardless of size, any business is vulnerable to fraudulent activities by employees. Dishonest people in large businesses can find numerous ways to misrepresent the financial condition of a company, including accounting for stock options, pension plans, derivatives and more. Just because small companies such as screen printing or embroidery shops don't face these technical accounting challenges doesn't mean there's no potential for accounting fraud. With this in mind, it's a good time to ask yourself, "What's protecting my business?"

Signs of Accounting Fraud

* Someone insists that he or she handle activities for which other departments are normally responsible. Including picking up the daily mail, acting as the sole responsible person with the company's financial contacts and working with police if items or money are found missing

* Someone continually works after hours, comes in frequently on weekends or insists on taking work home. Fraudulent activities are easier to accomplish when work is unobserved and unsupervised

* Someone refuses to follow recently established accounting guidelines. Owners should demand that guidelines be strictly followed and investigate financial and payroll records for up to several years in the past

* Someone works without direct supervision on all company's financial operations. When one trusted bookkeeper is responsible for records, payroll, receivables, deposits, payments and so on and you notice that at the end of the month or year the numbers don't match, this is the first place you should look at

* Someone refuses to take a vacation. This individual may be thought of as a highly dedicated and hard-working employee, but it could be that he or she simply doesn't want anyone to discover any fishy documents

Owners should always carefully monitor income and deposits, comparing sales receipts against actual amounts put into the bank. There are no sure-fire tips for accounting fraud. But by being on the lookout a small business can avert a potentially disastrous and embarrassing financial loss.

2 comments:

W. Beckmen said...

Interesting post. Since I plan on running a business soon, I'll have to keep this in mind. I know it'll be tough to run a business, so I can use all the financial advice I can find. Lately though, I've been thinking about buying a business instead of starting one from scratch. Any suggestions? Advice? Thanks.

Lynn Clark said...

Beckmen – For additional advice and help, I suggest checking out BizTrader.com. It's an online global marketplace where you can buy or sell a business. You can also use it to find a lender, broker, accountant, or any other type of professional help. It's a good resource and place to find a small business online.

Good luck!

Your Ad Here
Your Ad Here